The river sharing problem: A review of the technical literature for policy economists

Abstract

Water is essential for life. However, the basic problem of water resource allocation has
been that water tends to be over-allocated. Demand for water exceeds the available
supply. Essentially, the water economy is bankrupt. Bankruptcy problems have been
almost exhaustively studied in the literature on economic theory-primarily from the
perspective of cooperative game theory. The main concern of this literature has been how
to fairly divide up the assets of a bankrupt entity. In water resource economics cooperative
game theory has often been employed as a means of analyzing water resource
allocation. It was only recently that the problem of directional flow was incorporated into
such analyses. This has come to be known as the “river sharing problem” in the
theoretical literature. Accounting for the direction of flow in water resource allocation
problems has profound implications for policies that wish to facilitate both fair and
efficient water allocations. This is the case whether proposed policies are interventionist
or market based in nature. There is now a considerable literature on the allocation and
distribution of water resources characterized by unidirectional flow. In this paper I
critically review and appraise this literature with a view to making it more accessible to
applied and policy economists. A key feature of the paper is that the connection between
the bankruptcy literature, which has recently also realized the importance of flow, and the
river sharing literature is discussed. The current state of the art in game theoretic models
of water resource allocation with directional flow is discussed and implications and
consequences for water resource policy highlighted

Item Type:

MPRA Paper

Original Title:

The river sharing problem: A review of the technical literature for policy economists

Ambec, S. and Ehlers, L., (2008a) Cooperation and equity in the river sharing problem, in: Game Theory and Policy Making in Natural Resources and the Environment Edited by Ariel Dinar et al., Routledge Publishers 2008.

Parrachino, Irene, Ariel Dinar and Fioravante Patrone, (2006) Cooperative game theory and its applications to natural , environmental and water resource issues: 3. Application to Water Resources, The World Bank, Policy research working paper series, no. 4074.

Rogers, P. (1969) A game theoretic approach to the problems of international river basins, Water Resources Research, 5(4), pp. 749-760.